Finding an Accurate Forex Indicator - The Truths and Myths Behind the Popular Ones

If there was a perfect Forex indicator, everybody and their brother would be scooping bucket-loads of cash from the market regularly. The fact they aren't tells us something very important. One of the reasons they aren't perfect is covered in the link Looking Back.

Technical indicators are commonly used for Forex analysis, but a strong reliance on any of them is going to give you false sense of security. I cover the usual ones in the links below, but be sure to read the part about the limitations of each.

With the decentralized nature of Forex, there is no way to get a "Volume" component for the typical technical indicators common to stock and options trading. Traders have no reliable way of knowing "how much" of any currency is being bought or sold at any point in time.

There are a few Forex indicators which have shown an ability to reflect "Market Sentiment". The importance of knowing this sentiment becomes clearer once we fully explore what the Pro's are using in their toolkits.

According to surveys, the "really big" players, the one's with the resources to move the market (ie. the Central Banks, multi-billion dollar funds, etc.) rely on technical indicators to provide them with less than 25% of the information they base their trading decisions upon! In other words, 75% of the inputs used for making trading decisions have no basis in technical analysis! See "The Big Guys" below for more on this.

Your "Common Sense" is one of the best signals at your disposal. You need to learn to trust your own brain. The link below helps explain why.

Finding the "Right" collection of indicators to suit
your trading will take some experimenting.

Most of the trading platforms on offer for the "Spec" trader these days have enough "built-in" technical indicators to choke a horse. My advice to you is to not "bet the farm" on any one of them.

Your winning trading system will consist of many bits of information. The ability to separate the useful from the useless and apply them as your perfect Forex indicator is something you'll have to experiment with. The only indicators that are worth anything, are the ones you trust.

Use your demo account trading experience to try various indicators and then decide which ones are right for you. As I mentioned above, the Pro's only put, on average, 25% of their faith into technical indicators.